On the other side, SoundExchange, the group that manages digital
royalties for the record industry, wanted it to climb up to 25
cents.

The board also set the rate for Pandora subscribers, who don't
have to listen to ads, at 22 cents. This has much less of an
effect on the company, as it has said that 95% of its
customers choose the free version,
according to Ars Technica.

In after-hours trading, the Pandora's stock first plunged as much
as 33%, and then quickly recovered and soared. It's up
around 20% right now.

Pandora has had a rocky few months with investors leading up to
this decision, and its executives have
lashed out at competitors like Apple
and Spotify for
negatively affecting the economics of the music
industry. Pandora CEO Brian
McAndrews has
called Spotify's "free music on-demand" business
model unsustainable.

These public assertions highlight the feeling
that Pandora is a company in transition, trying to find a
profitable foothold going forward. Pandora's recent acquisitions
of concert ticketing company TicketFly, and on-demand streaming
service Rdio, suggest it has ambitions in these sectors.

Investors can be soothed by the fact that Pandora wasn't
dealt the potential death blow of an increase to 25 cents.
Now, Pandora has more leeway to work out alternate business
plans.

The board declined to set the royalty rates for 2017 to 2020,
saying they "shall be adjusted to reflect the increases or
decreases, if any, in the general price level, as measured by the
Consumer Price Index applicable to that rate year." That gives
some measure of assurance that the rate won't dramatically
increase, as was feared this year.

This decision doesn't affect on-demand services like
Spotify or Apple Music, but only internet radio services like
iTunes Radio or iHeartRadio (or Pandora).